European Union came into existence with an endeavor to stop the war between the bordering countries and to maintain the peace and harmony throughout the Europe. European Union is constructed on the principles of stability and to promote the prosperity among European nations with presence of security.
Recent recession has affected each and every part of the world, though it has a differential effect on each country. Some country has been most affected by it on the other hand some countries are least affected. Europe has been badly affected by the recession this has induced European union to draw a recovery strategy for the next ten years to see a prosperous and a competitive Europe in terms of knowledge and market growth.
Effect of financial crisis on European nation
- Unemployment: financial crisis has lead to an increase in the unemployment and still number of jobs are been laid off from different sectors irrespective of the output, just to minimize and to compensate the previous losses (Andrew Watt, 2009). A report by the European Union tells that in Europe around twenty three million people are unemployed (European Union, 2010). The countries which are most severely affected by the recession and which led to unemployment are Latvia where unemployment rate arose linearly from 11% to 28.2% and the country which was least affected by the recession was Poland, its unemployment rate just arose marginally from 17.8% to 18.2% and its GDP remain constant in comparison to the eastern Europe and a central Europe (European union, 2009). From the unemployment point of view, it is been seen that the financial sector is most affected as compare to the other sectors throughout the Europe. In a report by “International Labour Organization” the banks in Ireland are shedding maximum number of jobs. Similarly Dexia bank which is a joint venture between France and Belgium is also shedding large number of jobs. In the UK condition is worse as banks like Barclays and HSBC are laying off thousands of its employs (International Labour Organization, 2009).
- Export and import weaken: the recession also affected the export and import business of the EU27. The export business which contributes a lot to the economy faced a sharp decline and it could not help in balancing or reversing the effect of recession. It was recorded that during the period of 2008-2009 at the peak of recession, the export business of the United Kingdom fell to 6.9% which is the sharpest decline and which is never recorded in the UK history of export business and its import fell by 1.6% (Kathryn Hopkins, 2010). In euro zone there are countries like Germany, Netherlands and Sweden whose economies to a larger extent are reliant on the export business and at the time of recession they contributed very less to the GDP. They were only able to contribute half of the original contribution to its GDP and a country like France was able to contribute just ¼ to the GDP. This affected the economy of the European nations badly, though not taking full advantage of the weaken euro for doing the export business. All together EU27 GDP was reported to be -4% (Media Eghbal, 2009).
- Mergers and acquisitions: recession has not been beneficial in terms of mergers and acquisitions to Europe. Recession made M&A at its lowest from the previous years but still there were some M&A taking place within Europe, for example Lactalis a France based company buyed Ladorma a Romania based company and Rochea a Switzerland based company bought its share from Genentech Ltd (Claudiu Vranceanu, 2008). But it has been beneficial to developing countries like India and China, as number of mergers and acquisitions were taking place by them in Europe in 2008-2009. It was noticed that British company jaguar and land rover were acquired by the Indian automaker Tata, to make the British company free from the problem of cash flow (BBC, 2008). Similarly acquisition of Schoeweiss of Germany by the Indian auto maker Mahindra and Mahindra (Nimish Sharma, 2010).
- Decline in the Inflation rate with a threat of deflation: recession had a positive impact on a euro zone in a way that the inflation which was increasing from day to day basis prior recession, started to decline. In Europe it was recorded that the inflation reduced from 4% in the beginning of 2008 to 2.1% at the end of the year (Media Eghbal, 2009), as there was a shortage of cash flow in the market. In addition to this price of oil were also low, which resulted in the lower inflation rate throughout the Euro zone (Adrian Nash, 2008). It was predicted by the researchers that the consumers will be waiting for the cheaper commodity which will make them defer there purchase for the moment and that would affect the producers and the investors. This would deepen the nature of recession.
- Decline in the industrial production and reduction in revenue: it was experience for the first time that the Europe27 had a negative industrial growth, country like Germany known for its technicality and capability faced a technical recession for the first time in history, with a negative growth. Same was a fate of all European countries; they also faced a negative growth for example France with -.5%, Italy with -.7% and Spain with -.6% (Euro monitor, 2009).
- Weak currency and decline in interest rate in Europe: in the recession it was recorded that the euro was as it’s lowest as compared to the US dollar and UK pound and it was still not taking the advantage of doing the international business in terms of export. To minimize the effect of recession and to bring in the stability the Europe central bank steadily started to cut down its interest rate throughout Europe to promote the investors to take risk and bring in some cash flow in market.
- Effect on the tourism industry: the European tourism industry was severely affected by the financial crisis. By a report from the commission of European tourism, which states that the Europe experienced a sharpest decline in comparison to other part of the world in terms of the tourism revenue. Similarly a report from the World Tourism Organization also confirmed that the Europe tasted a negative growth of -1.1% in the international tourism in the year 2008 and 2009 (Ivan Camilleri, 2010).
Evaluating the strategy for recovery proposed by president Jose Manuel Barrosso
The new strategy has been proposed, which is named as “Europe 2020” has been brought into the act as the Lisbon treaty which was been implemented from the past one decade has come to meet its deadline on 2010. The new strategy for 2020 Europe in some ways is similar to the Lisbon Treaty. As in both the treaties issues of growth and competition with the major countries were discussed. Similarly both the treaties formed the new policy structure and the guidelines for the implementation. But the new strategy for Europe 2020 has introduced some new initiatives, which in the past treaties have been introduced but never have been implemented. The Europe 2020 strategy focuses more on the global warning and on the techniques, which need to be researched and developed for the better future.
- Andrew Watt. (2009). ‘The economic crisis in Europe’. Available: //www.europeanforumcyprus.eu/Source/sem4/prs_AndrewWatt.pdf. Last accessed 2 April 2010.
- Kathryn Hopkins. (2010). ‘January trade deficit widens as exports fall’. Available: //www.guardian.co.uk/business/2010/mar/09/january-trade-deficit-widens. Last accessed 1April 2010.
- Media Eghbal. (2009). ‘The global financial crisis: recession bites into Western Europe’. Available: //www.euromonitor.com/The_global_financial_crisis_recession_bites_into_Western_Europe. Last accessed 1 April 2010.
- Claudiu Vranceanu. (2008). ‘Biggest mergers and acquisitions in 2008′. Available: //www.wall-street.ro/articol/English-Version/56433/Biggest-mergers-and-acquisitions-in-2008.html. Last accessed 4 April 2010.
- BBC. (2008). ‘Tata buys Jaguar’. Available: //news.bbc.co.uk/1/hi/7313380.stm. Last accessed 1 April 2010.
- Nimish Sharma. (2010). ‘Mergers and acquisitions in times of financial crisis’. Available: //www.dare.co.in/strategy/business-essentials/mergers-and-acquisitions-in-times-of-financial-crisis.htm. Last accessed 28 March 2010.
- Adrian Ash. (2008). ‘inflation during recession’. Available: //whiskeyandgunpowder.com/inflation-during-recession/. Last accessed 5 April 2010.
- International Labour Organization. (2009). ‘Impact of financial crisis on financial sector’. Available: 12. //www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/documents/meetingdocument/wcms_103263.pdf. Last accessed 7 April 2010.
- European Union. (2009). ‘Unemployment in Europe’. Available: 14. //europa.eu/rapid/pressReleasesAction.do?reference=STAT/09/109. Last accessed 1 April 2010.
- Ivan Camilleri. (2010). ‘European tourism worst hit by recession’. Available: //www.tourismandaviation.com/news-475–European_tourism_worst_hit_by_recession. Last accessed 7 April 2010.
- European Union. (2010). Europe 2020. Available: //ec.europa.eu/commission_2010-2014/president/news/statements/pdf/20102010_2_en.pdf. Last accessed 2 April 2010.